CBC News Radio Report: How Low is the Flow

The World at Six from CBC National Radio News - Feature Report "How Low is the Flow?" from Brad Clark on Debate on the Future of Oil.

Good evening, I’m Bernie McNamee and I’m Barbara Smith. This is The World at Six from CBC National Radio News. In the news tonight: “How Low is the Flow,” a feature report from Brad Clark on the debate over the future of oil.

From the financial markets: rising oil prices pushed North American stocks up today; oil and energy stocks jumped as gas prices headed higher in the U.S. Prices are up because of rising demand and tight inventories. In New York the Dow Jones rose 73 points to 10,515. The NASDAQ was twelve points higher to 2,065. Shares in Canada’s energy producers were also up with the TSX jumping 65 points to 8,898, and the Canadian dollar was down more than a half a cent to 74.87 cents (U.S.). Now to our feature report on crude oil and whether there is enough to meet the demands of the industrialized world.

Predictions that the world would soon run out of oil date back to the 1920s. Over the years experts have disagreed on the size of the world’s oil reserves and whether the supply could keep up with the demand. As Brad Clark reports the current high price for gas in the U.S. is fueling a renewed debate over oil.

(To the sound of a motor revving up, we first hear commentary from several unnamed sources )

“It’s a totally radical argument to say that the Saudi Arabians are actually running low on oil.”

“Current oil reserves are at an all time high.”

“We’re filling this large tank at a much lower rate than we’re emptying it.”

“Most who go about saying that the world is running out of oil rarely publish in peer-reviewed journals.”

(Now, Brad Clark)

The latest debate over the future of oil starts at gas pumps, where motorists in some parts of North America have never paid more for a fill-up. It pops up in news reports, where concerns about oil from the Middle East are being fueled by ongoing violence in Iraq. And it surfaces increasingly in oil company boardrooms, where executives have had to reveal that their oil assets might not be as big as once reported. The best example: Royal Dutch Shell. Even after securities regulators forced the issue on the company, shell officials scrambled to deflect concerns in a hastily called conference-call, assuring investors the oil would be developed, just not as fast as they had hoped.

(comment from unidentified source )“The recategorization to ‘proved reserves’ does not materially change the estimated total volume of hydrocarbons in place, nor the volumes that are expected ultimately to be recovered.”

(Back to Brad Clark)

Then there’s been the suggestion by a prominent oil analyst that Saudi Arabia’s reserves have been overstated. Officials with the usually secretive state-owned oil company, Saudi Aramco, flatly denied the allegation and opened their books to prove it. Some say the debate over Shell and Saudi Arabia is merely a sign of a much bigger concern that maybe the world doesn’t have as much oil as we thought. Jerry Gilbert has worked throughout the Middle East’s oil industry, and is the managing director of Barrelmore Limited in Ireland.“Our discovery rates are getting lower and lower and lower. We’re finding a lot less oil every year now than we’re producing, so you can’t go on doing that indefinitely.”

Of course the airwaves have been filled with dire predictions about the future of oil in the past.

(Voice of past )“Today this nation faces a dangerous energy crisis and from all available information this crisis will probably become more severe.” (Voice of past)“We should be taking all steps possible to prepare a rationing scheme.”

(Back to Brad Clark)

When the Arab oil embargo of the early 1970s drove up the price of crude, it brought energy issues to the fore, and with it predictions that oil would run out in a matter of years, some said by 1985. Jerry Gilbert says this time it is different. “Yes, people have been making predictions for years, crying wolf, and it’s easy to say now that this is just another wolf cry. But I don’t believe it is.” Gilbert says technology makes it easier to predict how much crude there is today. He says between 1960 and 1980 the world’s inventory of oil increased every year. Since then the world has burned more oil than it’s discovered.

Paul Roberts, the author of a new book, “The End of Oil,” says the global appetite for crude today is about 29-billion barrels a year, but Roberts says only 9-billion barrels of new oil are discovered annually. “For every 3 barrels of oil we’re burning up, we’re only discovering one barrel. Now if this was your bank account, and you were treating it that way, pretty soon you’d be calling home and asking if you could live with your parents.”

Roberts and Gilbert say it’s not just a matter of finding more oil, but producing it as well.They warn that a production peak is coming, where the appetite for fuel exceeds the industry’s ability to produce it. Roberts and Gilbert say that peak is likely coming in the next six to ten years. Some analysts say it’s already occurred. They say when it arrives prices will jump much higher, and there will simply be less and less fuel for consumers.

Jerry Gilbert says it will have a major impact. “If the price of oil goes up, say by a factor of two, which it well might, tractors, ploughs, harrows, all of this sort of equipment used in agriculture is hydrocarbon dependent, and there will be big implications for food prices, there’ll be implications for heating, from any of the things for which we use oil. So, I think there are huge implications in this.”

Creaky pump jacks once covered parts of North America like giant crickets, sucking up rich crude for a thriving economy, but today conventional-oil production is in decline, and in some areas, has been for decades.

Peter McCabe, senior research geologist at the U.S. Geological Survey in Denver, says while it’s harder to find oil in the ground on this continent, the prospects in other parts of the world are promising. “Today we have more reserves than at any other time in history, and this idea that we’re about to run out or that were about to peak production is a little naïve. McCabe says people who take the pessimistic view don’t pay enough attention to non-conventional sources of crude: offshore, in the arctic, or locked in oil sands. He says they tend to focus on the initial discoveries and not on what he calls “reserve growth,” where the pools of newfound crude almost inevitably turn out to be much bigger than the first estimates. “If you look at world reserves for all but two or three years of the last twenty years, we have added more reserves than we have produced.”

Judith Dwarkin, chief economist at Ross Smith Energy Group in Calgary, agrees with McCabe. She says that growth from existing fields over the last decade has added up to the equivalent of two Saudi-Arabia’s worth of oil. “Much of the world is still unexplored for crude oil: northern Russia, eastern Siberia, the South Atlantic, and there’s still the potential for some very large finds there.”

The questions about the size of reserves for companies like Shell don’t phase Dwarkin or other oil analysts. They tend to see it as a financial issue rather than a geological one. Dwarkin is also suspicious of those who question Saudi Arabia’s oil estimates. She thinks there’s a political side to the U.S. analysis, given the violence in Iraq and the presidential election campaign. “Another critical factor is the souring of U.S. - Saudi relations since late 2001, which is also kind of leaking into discussions about energy security and oil supply and all those things, so I guess the bottom line is, to sort of take what’s being said with a bit of a grain of salt. Leave the actual determination of the technical issues to the technical experts.”

The trouble is that both sides of the debate claim the technical high ground and throw facts and figures at each other to support their arguments. With oil and gasoline prices on the rise, the only thing that can be said for certain is that more people are taking up the energy debate again.